Europe - HVS Hotel Valuation Index

HVS, the world’s leading hospitality consulting and valuation firm, is pleased to deliver the 2018 Hotel Valuation Index (HVI). The HVI is a hotel valuation benchmark developed by HVS. It monitors annual percentage changes in the values of typically four-star and five-star hotels in 33 major European cities. Additionally, our index allows us to rank each market relative to a European average. All data presented are in euro, unless otherwise stated.

The methodology employed in producing the HVI is based upon actual operating data from a representative sample of four-star and five-star hotels. Operating data from STR were used to supplement our sample of hotels in some of the markets. The data are then aggregated to produce a pro forma for a typical 200-room hotel in each city. Using our experience of real-life hotel financing structures gained from valuing hundreds of hotels each year, we have determined valuation parameters for each market that reflect both short-term and longer-term sustainable financing models (loan to value ratios, debt coverage ratios, real interest rates and equity return expectations). These market-specific valuation and capitalisation parameters are applied to the EBITDA less FF&E Reserve for a typical upscale hotel in each city. In determining the valuation parameters relevant to each of the 33 cities included in the European HVI, we have also taken into account evidence of actual hotel transactions and the expectations of investors with regards to future changes in supply, market performance and return requirements. Investor appetite for each city at the end of 2017 is therefore reflected in the capitalisation rates used and investment yields assumed.

Without batting an eyelid, it’s safe to say 2017 was a spectacular year: The headwinds from geopolitical uncertainty and instability proved surmountable, providing an upswing in confidence among investors, developers and lenders compared to a year ago. While 2016 was a year of cautiousness with flat average European hotel values, in 2018 hotel values across Europe grew by 3.9%. We attempt to summarise so much into a few salient points.


  • The background is one of strong economic growth in the Western world, as 2018 is expected to be as good as 2017, with robust business and consumer confidence. Wobbles in the stock market, inflationary pressures and potential interest rate increase, however, call for caution over the medium term.


  • Having digested the historical Marriott/Starwood takeover, the world watches as the travel industry gives weight to more strategic investments to remain technologically relevant in an ever-evolving context. The idea is for established companies to add new ‘layers’ to their core competencies. See, for example, AccorHotels (again!) investing in Potel & Chabot (a catering business) or acquiring Evature (specialists in artificial intelligence). It will be interesting to assess the added value of such acquisitions in the medium term.

Tourism Dynamics

  • Never mind some geopolitical upheaval here and there, international travel is in rude health. International tourist arrivals in Europe reached 671 million in 2017 (51% of global movements), a noteworthy 8& up on 2016 for such a mature region. Southern and Mediterranean Europe saw impressive growth of 13%, Western Europe 7% and Northern Europe and CEE a slightly more subdued 5% each. Rebounds in visitation from Brazil and Russia, following years of decline, certainly helped. Further terrorist attacks and anti-tourist sentiment (Barcelona, Venice and San Sebastian) could yet provide some surprises.

Hotel Performance

  • From a RevPAR point of view, 2017 was memorable. Europe saw growth of 10% over the year, with a third of the markets in our index going well above this. This is the result of impressive performances in the Iberian Peninsula and Russia, combined with no market experiencing serious declines in RevPAR. In addition, the hotel pipeline in Europe remained modest at 6%, whilst it was in double digits for every other continent. Modest new supply and strong demand bode well for 2018, economic or geopolitical shocks notwithstanding.


  • Inflation (think UK mainly) and payroll increases are a challenge to the bottom line, as operational costs squeeze profits. Meanwhile, travel is increasingly viewed as an ‘experience’; hence the interest in areas with further revenue potential, for instance, the intense enthusiasm for F&B operations as a newly refreshed and vital complement to accommodation. Improved margins, however, require conscientious know-how and planning to materialise, as the struggle of various high-street names (such as Byron) has recently shown. As time progresses during 2018 towards ‘Brexit Day’ (29 March 2019) when the UK formally leaves the European Union, we are hopeful of many of the current uncertainties surrounding the impact of this being resolved.

Transaction Volume

  • Hotel transactions in 2017 were close to the record levels of 2015, with €21.7 billion compared to €23.7 billion two years ago. This (second largest ever) volume represents an increase of 22% on 2016. For reference, the pre-crisis level was just over €20 billion in 2006. Spain’s climb into the the hall of fame to second position in terms of investment (behind the UK), as well as increased capital flowing in from the USA, were some of the highlights of 2017. The returns from hotel real estate continue to attract interest from private equity and institutional investors, seeking to invest increasing levels of funds. Please refer to our sister publication 2017 European Hotel Transactions for more details.

Capitalisation Rates

  • As the profusion of both debt and equity chased hotel investments, driving hotel yields lower and even closer to fixed-income products, cap rates continued their downward journey throughout 2017. Inflation and higher interest rates on the horizon could mean this era is soon to come to an end.

Hotel Values

  • European values, as an aggregate, were barely 5% below their top level in 2007, with half of the cities in our index having reached or surpassed the peak. There is still room to grow for most Eastern and Southern European markets, as well as the UK (in euro terms, due to currency fluctuations which have seen value drops since the 2016 Brexit referendum).

Business and consumer confidence, as well as GDP growth in Europe, are all riding high. Hotel demand is strong across the majority of European markets, with low levels of new supply (with a few exceptions, such as London), which points to continuing robust performances across the board. Yes, the prospects from a RevPAR point of view for 2018 could hardly be more promising. What could possibly go wrong?

Well for one, it is likely that the very low cost of debt we have come to view as normal will soon (slowly but surely) come to an end as the US Federal Reserve pushes ahead with its gradual interest rate escalation, and as the Bank of England prepares the general public for further increases, following the first (marginal) rise in ten years, in November 2017. Furthermore, inflation and higher interest rates will eventually also impact cap rates; this may happen sooner rather than later. We feel, however, that whilst some markets might experience cap rate decompression earlier (the UK, potentially), more ‘laggard’ markets could still benefit a while longer from lower yields, as they continue crystallising their value potential.

Market Value Change (Local Currency)

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